Monday, December 14, 2009

What does it take to run a successful small business? Many entrepreneurs are caught off guard by the amount of work and the variety of tasks they must perform when running a small business. It is easy to get overwhelmed by all the jobs both big and small. Is there any way to make the juggling of all these tasks easier?

Some jobs are easier to deal with than others simply because the owner likes the particular task. Others are easier to avoid because the task is distasteful. The fact of the matter is that each task is crucial to the success of a small business and cannot be avoided. So how can you get them all accomplished?

Set up procedures and processes for your business. Take the time to figure out how best to organize your office, your business, yourself. Write down all the jobs that must be done to keep your business running and determine when they must be done. Then determine who is best suited to complete each task. If you are a one woman shop then it would appear that you must do everything but consider whether it would be money well spent to outsource some of your tasks. Hiring a bookkeeper or enlisting a payroll service may free up your time for income producing tasks which will pay for the outside service and allow you to do what you love and what you are good at.

We recommend putting undesirable tasks right on your calendar. Figure out what time of day and what day of the week works best for you to get the dirty work done and schedule your least favorite tasks for this time. Then stick to the calendar. Get the job done and crossed off your to-do list. You won’t believe how good it feels. Use to-do lists, a calendar and an organization chart and you will find your business running more smoothly and your life feeling less hectic.

So any other good ideas out there to help a small business owner stay organized and on track? Let us know.

Wednesday, December 2, 2009

Today Susan and I began to teach an Entrepreneurial class geared mainly to executives downsized with the current economy and looking to start their own businesses. In preparation, I was reflecting on some of the differences between managing in a corporation and managing a small business and some of my early struggles in making that transition. Many of the skills are transferrable, but need to be toned down to account for less time, money, and staff. They are often, however, the very skills that lead to success in the small business world.

1. Strategizing. Most executives have been heavily involved in strategy sessions. A common misperception with small business is that you do not need to spend as much time on it as with large corporations. Nothing could be further from the truth. The big difference is that the strategizing team will not be readily available. One of the first things a small business owner should do is identify a team of experts to help him strategize. These might be people hired as employees, they might be experts whose services are outsourced, or they might be a group assembled as an Advisory Board.

2. Budgeting. Many corporate executives have been involved in budgeting so they understand the process, but many have only been responsible for developing their department budget and have had sales forecasts and production schedules prepared for them by other departments. One of the major hurdles for adjusting to managing a small business is that the small business owner is responsible for the entire budget, not just one piece of it. Depending on the type of business, the budget can be more or less complex than the executive is used to, but since there are no other departments to shift funds between to make up differences, it requires just as much thought and foresight.

3. Accounting and Business Information. Large Corporations spend vast amounts of money on Integrated Business Information Systems. When starting a small business, the business owner needs to perform the job of a systems analyst, detailing exactly what information is required and desired to run the business and make informed decisions, and then performing a cost/benefit analysis in regards to potential solutions. There are many industry specific programs which can be customized for certain industries as well as the popular software programs on the market (QuickBooks, PeachTree, MYOB, etc). Each business owner needs to determine the balance between having the information needed to make well-informed decisions and the time and resources available to gather this information.

4. Defining Goals and Measuring Performance: Many small businesses simply begin with an idea and open their doors for business. The business owner that takes the time to define specific, measurable objectives for all areas of the business and then compares actual results to those objectives will be in a better position to quickly adapt to any variances or changes noticed. Awareness and quick adaptation are vital for small business success. Many corporate executive will be thrilled with the speed with which a decision can be implemented in a small business environment.

5. Managing Employees: Corporate executives are often well-trained in managing and motivating a workforce. Never is it more important than when you own your own business to apply those skills to hire the right employees, train them well, communicating your mission and objectives and encourage independent thought and innovation within that mission.

For those of you that have made the transition from corporate executive to small business owner, what is your experience?

Wednesday, November 18, 2009

What is accounting really? Techniques or a language that allows you to keep track of the money coming in and going out of a business. Many people are uncomfortable with accounting because they are unfamiliar with the terminology. I can’t tell you how many times I tried to explain to friends struggling with an accounting class in college how assets could be debits, liabilities-credits while income was a credit and expenses were debits. They always thought assets and income should act the same way. I tried to get into the theory behind double entry accounting and how the balance sheet and income statement flow through each other, but some people just got bogged down with the terms.

The nice thing about the invention of accounting software programs is that the terminology has really become a non-issue. With QuickBooks or other programs, the user is filling out forms or writing checks and the program “writes” the entries for you so you don’t need to know whether you are debiting cash or crediting sales. Once you let your discomfort over the terminology go, you can focus on learning how to use the program. Modern software has nice features built in that require you to enter data such as customer names and addresses only once and then each time you invoice that customer, all that information is automatically entered into the form. Even better, once you’ve learned how to use your accounting software, you can really reap the benefits of good accounting by learning how to use the many reports the programs can generate.

The whole point to establishing a good accounting system is to provide you, the owner, with the information you need to run your business. The less time you spend on the bookkeeping portion of the accounting process, the more time you will have for the analysis portion. It is the analysis that will point out the questions your business is asking you. While modern accounting programs can’t answer the questions, but they can point you in the right direction and give you the information you need to find the answers.

A successful small business owner learns how to make the most from her accounting process by selecting the right program, learning how to use the software, learning how to read the financial statements and using all the great information to make the decisions needed to keep her business moving forward.

Monday, November 9, 2009

What do you need to keep sane while running your small business? Organization, routines, structures, priorities, and most important, a guiding mission. The key to getting all the work done in an efficient and effective manner is to set up the structure, steps and routines to keep you and your employees on track.

The key to making the process work is to become aware of your own personality and style. Organization techniques that work for your neighbor may not work for you because you each approach work and life in a different way. Some people are visual and need lists and reminders visible to keep them on track.

Once you figure out the ideal organizational structure for you and your employees consider all the tasks you need to accomplish in your business. Write them all down, no matter how small or insignificant they may seem. A little intimidating, isn’t it? Now you need to prioritize the tasks and figure out a timeline for each one. Some things will need to be done daily, others once a month and so on. You need to have prioritized first so if you run out of time at the end of a day, you’ll sleep at night knowing the most important jobs were completed.

How can you get all these tasks done and still have time for a personal life? Delegate where you can. Entrepreneurs are often unable to let others take charge. You can’t do it all so train your people well and let them work. Job descriptions and procedure manuals can help you insure that the works is done the way you need it to be. Try to be open to other ideas and other ways to get a job done. Your employee may have a great idea so hear him out. Make sure everyone understands why they are performing a task in a certain way. People are much more likely to remember how to do a job and to do it well if they understand why it is important and what the ultimate goal.

Don’t underestimate the importance of having a mission statement for your business and using it as you establish a structure, routine and processes for yourself and your employees. Creating a solid organization structure with good procedures, effective routines, clear priorities and a well defined mission will keep your business running smoothly and make the work environment more fun for everybody.

Tuesday, October 27, 2009

The question that I often receive from small businesses regarding creating a budget is “What’s the point?” Underlying that question is the real question, “How do I use a budget to help me manage my business?” So let’s attempt to address that question.

First of all, when we talk about creating a budget, we usually mean a Pro Forma Profit and Loss Statement. In essence, if everything goes as planned, this is what our profit (we will only think positively here) will look like. I recommend taking this one step further and also creating a Pro Forma Cash Budget, budgeting for when you actually expect to receive and spend your cash. This will allow you to anticipate when you are going to have an abundance of cash and when you are going to have some cash needs so that you can plan for them. For example, if you run a retail business you can expect to do most of your business in November and December so you will end the year with a large cash balance. Before you spend it all or hand out large bonuses, look at your Cash Budget for January through April to see how much you money you need to keep in cash to get through those tough sales months.

Once you have your budgets prepared and you have finished your first month in the new year, do a comparison between your actual amounts and your budgeted amounts. Most importantly, be sure that you can explain the variances. If your Cost of Goods Sold is higher than expected you might want to be sure that it is because your Sales are higher than expected as well. If your labor expense was higher than anticipated can it be explained by an unanticipated order or have you not been watching your overtime closely enough? If you are a restaurant and your food purchases have increased but your sales have not, you may need to make sure that someone is not stealing food from you.

For each of the explained variances you will also want to consider whether it is a one-time anomaly or if this is something that you expect to continue. If it is a one-time event and you have overspent your budget then you know that you will need to adjust your spending down in a different month. If it is an event that you expect to continue, then you will want to adjust your budget to take the change into account. The favorable adjustments are easy. It is the negative variances that require some decisions on the owner’s part. Just remember that you developed your budget based upon your company’s strategy, which means that you need to make sure that all adjustments to your budget are also in line with your strategy.

The point of a budget and a good financial management policy is that you have planned for what you expect to happen and you are now analyzing the data and reacting quickly to your business needs.

A strong grasp of your business finances is essential to running a successful business. As with all things financial, if you find that this is not one of your strengths, then don’t just push it aside and ignore it. Get the help that you need.

Wednesday, October 21, 2009

In these challenging times, it is more important than ever to put together a comprehensive budget for your business to use in the next year. We recommend creating both a budget for your Profit & Loss and a budget for your Cash Flow needs. For those of you who are new to the budgeting process, here are a few pointers:

Pull out your prior years’ income statements and look at your historical data. Which income streams have been most successful for you and have provided you with the highest margins and therefore the most money? Which products or services have not performed as well as expected? Consider whether they can be improved and if not, eliminate them.

Look for patterns in your income stream and expenditures. If your money coming in from sales doesn’t match with timing of your major expenses such as seasonal inventory purchases, real estate tax payments or insurance premiums, setting a budget can help you make sure you are saving enough money to pay for these items.

Think about using zero based budgeting. Don’t just take last year’s budget and add an arbitrary increase in sales and expenses. Do some research and consider what a reasonable sales figure will be. Figure out what your staffing needs will be based on this sales figure. Talk to your major suppliers and your utility providers and see what price increases may be in your future. Consider what items are necessities and which expenditures are really luxuries. Evaluate every item in your budget and consider whether it is in line with your strategy for your business. With the economy still recovering, you need to maintain a lean approach to both your budgeting and the actual managing of your business. There is a wealth of information available to help you with the creation of your budget if you do a little research.

A well planned budget process can take some of the stress and fear out of managing your cash flow throughout lean times and allow you to spend your money wisely and avoid running up credit card balances.

Monday, October 12, 2009

We often encounter resistance at this time of year as we begin to speak of budgets with our small business friends. The feeling is that budgeting is a time-consuming process with little benefit. What's the point. We disagree. This blog is the first of a three-part series to make our case for the need for small businesses to devote some time in the next two months to establishing a good budgeting process.

Before you can create a budget, you need to know your long term (the next 5 years) and short term (2010)goals and your strategy for reaching those goals. So pull out your old business plans and take a look. Have you been following your plan? If you have not been following it, why? With the changes in the economy, do you need to rethink the direction of your company or are you just taking a little business detour?

If you do not have a business plan, then now is the time to at least formalize your operating strategy. What is your business? What differentiates you from other businesses offering the same services in your industry? Who is your target market? Are you reaching them? Do they know that you exist? After you have given some thought to these questions, take out a piece of paper and draw 3 columns with the following headings: 5-year vision, 1 year strategy, and tactics.

Under the 5-year vision, write down specifically how you want your business to be defined. Where do you want to be in 5 years? For example, you might want to be known in your market as the cutting edge new idea generator. Be clear here to define on paper who your target market is for the cutting edge new idea generator. Who do you expect your customers to be? Do some research to find out who these people are; who they are currently buying from so that you know who your competitors are; why they are buying from them. What is happening in your industry as a whole? Do you need to be considering alternative products and services if you think that your current products are going to be obsolete in the future? Under the 5-year vision you might also want to consider internal operations as well: what skill positions do you think you will need? What work environment do you want to create?

Next analyze where your business is compared to that 5-year vision. How close are you to achieving those results? What do you need to do to get there? Under your 1-year strategy column, write down where you need to be by the end of 2010 in order to be on track for your 5-year vision. This may include some specifics as to the dollar amount of sales that you need to achieve or the staff that needs to be in place by year end, etc.

Under the Tactics heading, start writing specifics. This is where you place your need to develop your specific advertising and promotion plans, your foray into social media, your need to create a specific video for your website. You might have a tactic to develop job descriptions and procedure manuals for your staff. Be as specific as possible here as this is the content that you will use to create your budget.

Now that you have your vision and strategy in place, you are ready to create a budget that helps you to reach your goals as opposed to a budget that merely states how you have been spending your money over the past few years. Tune in next week for a discussion on how to use this information to create a good flexible working budget.

Wednesday, September 30, 2009

Will you be ready if the H1N1 virus hits your business? According to the Institute for Business and Home Safety, an estimated 25% of businesses do not reopen after a major disaster such as a flu pandemic. The most important thing that you can do is to develop a written plan and do it now!

Under the heading of prevention, encourage your employees to get the flu shot. Consider placing posters in your break-room to remind people to wash their hands and practice good workplace hygiene. Place hand sanitizers at strategic locations such as next to all keyboards and phones. Now might be the time to encourage social distancing, limiting handshakes, etc. Encourage employees to stay home if they are sick so that they do not spread their illness to their co-workers.

Review your Sick Leave Policy to be sure that it is flexible, non-punitive, and well-communicated. Consider allowing employees to work from home if possible or to come in on off-hours to allow them to care for sick family members during the day.

Review your job descriptions to identify which tasks are critical and which can be postponed if necessary. If you begin to lose employees to illness, can the remaining staff combine the critical tasks and keep the business functioning? Update your procedure manuals so that anyone can step in and perform the essential tasks if necessary, even if there is no one available to train them. Take the time now to do some cross-training for your essential tasks.

Worst case scenario, who can you bring in to staff your business if you have a major outbreak? Contact family members, neighbors who are not working full time, etc., who might be willing to help you out in an emergency. Bring them in for some high-level training if possible. Talk to your area temp agencies now to develop a plan to cover for your skilled positions.

Look at some of your other essential functions, such as suppliers and subcontractors, to evaluate whether your business can keep going if their business has to shut down for a period of time. If not, identify alternatives. Who will take care of business if YOU are sick or home caring for a family member?

Develop a list of contacts based on your above plan. Communicate, communicate, communicate so that all of your employees know what to do and where to find the information.

If you are looking for more information, the Department of Homeland Security, the CDC, and the SBA has issued a guide to help you develop a plan. You can access this along with other flu related information at www.flu.gov.

Tuesday, September 22, 2009

We just attended the New North’s Best Practices Panel Discussion about Social Media. The speakers were Heidi Strand, co-owner of Blue Door Consulting; Dana VanDen Heuvel, the Marketing Savant; and Margie Harvey, VP of Human Resources at Miles Kimball Company. Here are a few practical pointers taken from these experts to help the small business owner or entrepreneur get started on your social media journey.

First you need to develop a social media strategy. How will social media fit into your overall marketing strategy? What do you want to achieve from your social media interactions? Are you hoping to improve brand awareness or do you want to increase your sales? Once you have determined your goal, you need to consider who your customers are and where they are in the world of social media. You do not want to be concentrating on developing a Facebook Fan page if your customers are not on Facebook. How do you know what social media outlets your customers are using? Ask them. It can be as simple as that. While you are considering who your customers are currently, also think about whom you want them to be in the future. Good social media work can help pull in an entirely new customer stream.

Make sure that your foray into social media starts small. Chose one tool to begin with and focus on mastering it. Spend the time making sure that your content is relevant, useful and well executed, but don’t spend so much time trying to refine your efforts that you don’t get the job done. As Heidi Strand quoted, “Perfection is the enemy of done”. In the quick fire world of social media, some imperfection is expected and tolerated.

The final thing to remember is that you must commit some time and resources to your social media interactions to make them work. Schedule regular time into your week to blog, tweet, LinkIn or write your online newsletter.

If you are in the New North region, considering attending these quarterly presentations because they are always relevant and worthwhile.

Monday, September 14, 2009

Every once in awhile I run across a new website or a new tool that really hits a chord with me and I need to sing its praises. Two weeks ago I discovered www.rescuetime.com and I recommend this to everyone who is an entrepreneur, a person with numerous insatiable interests, and a business that is not moving forward at the pace you would like. For those who fit into that category, time management is more than just a business technique that should be focused on; it is one which must be mastered if you ever hope to be successful! You start your day with great intentions to work on your business and then, thanks to the internet, get distracted by your many interests. The day goes something like this:

Today, like every day, you begin your day by vowing to make those sales calls that you know are critical to keeping every business moving forward. You sit down at your desk to work and you always begin your day by quickly checking your e-mail. You fire up your computer and the internet opens to your home page which is your favorite news service. Oh, that’s an interesting headline…you will just take a peek at it. What’s that? There is a reference made in the article which you know nothing about! So you look it up on Google…half an hour later you emerge from your little side-trip. No sales calls yet, but you are a little more knowledgeable about the world. So now it is time to get back to your e-mail. You read your e-mail and respond efficiently to the pressing items. Then your eye begins to flow to all of the updates and on-line newsletters to which you have subscribed. You begin to read. Again, all interesting information, however you continue to read and research miscellaneous items for the next two hours. By this time you need to meet with clients, fill your orders, prepare quotes, or do whatever is your core business function. This takes you to the end of your day. Once again, no sales calls were made.

Rescuetime.com is a free download that allows you to track where you spend your time on-line. It is like holding a mirror to your face. You can set rules, such as no more than 30 minutes on the news per day, and the program will alert you when you have hit your limit. You can set goals, such as 2 hours of concentrated sales calls, and the program will block any distracting websites during that time if that is what you desire. The program graphs where and how you spend your time and you can use this information to chart a plan of action for your future. This is a program which helps you to reclaim time that is lost to your varying interests and helps you to focus on the business tasks at hand. If I have described you, and you are looking to move your business forward to the next level, I recommend that you give it a try. To your success!

Tuesday, September 8, 2009

My goal in life is to get everyone to love accounting. I don’t think I’m going to succeed but I’ll keep trying. What do I love most about accounting? It’s all about balance. Balanced equations, balanced transactions, balanced books. In these turbulent times, couldn’t we all use a little balance in our lives? Accounting can help give you some. See-something to love already and a reason to love accountants. Yes, I’ve heard all the jokes; my husband loves to accumulate them. So how can accounting bring some balance to your business life? Try focusing on managerial accounting. Large businesses have cost accountants, Fortune 500 corporations have whole departments devoted to the discipline. Successful small business owners need to assume this role as well. It is not as scary as it sounds. We are fortunate in this time period to be able to make use of a variety of accounting software programs. Beth and I are QuickBooks Pro-Advisors, but there are many other good programs out there that make accounting and bookkeeping easier for the small business owner. Managerial accounting is using the output from your accounting program to manage your business. We have noticed that too many small businesses have only a tax accounting focus to their accounting. We suspect that is because most small businesses use a tax preparer to finalize their books and a tax preparer is naturally focused on what the business needs to file their taxes. It is very important to keep the tax authorities happy! It is also important to recognize that tax accounting is only a small component of the accounting picture.

Managerial accounting is using the information your accounting program or accountant is providing to help you guide your business. This means you must have financial statements prepared and available to you on a monthly basis. This is where the focus shifts from tax accounting which relies only on a year-end statement to managerial accounting which requires monthly statements. Ideally, as the small business owner, you have prepared a budget for your business and you are comparing your actual results to your budget regularly. You should also be comparing this year’s results to prior year’s financial information. Red flags should pop up if financial problems are arising and this task will bring these problems to your attention before they reach a crisis point. If your gross profit is less than you expected you need to understand why. Is your main supplier charging more than you anticipated? Are your shipping costs running higher? Do you have an employee theft problem? If your supplier is charging more, do you need to raise your own prices or can you get your sales staff to increase volume and earn you a volume discount. If shipping costs are rising, do you need to add a surcharge to your customers? If you suspect theft, do you need to install security cameras in your warehouse?

In today’s tough economy, no business can afford to be blindly operating at a loss. If you are losing money and you don’t know why, putting on your managerial accountant hat can help you answer the questions and formulate a plan to solve the problems. So do you love accounting a little more? Maybe not, but hopefully you can see how it can help bring some balance to your business life.

Friday, August 28, 2009

Most people who approach us to help them write business plans and organize their businesses will at some point need to obtaining financing. If you are worrying about losing your job or dreaming of starting a new venture or perhaps looking to take advantage of the SBA loans while in the next few months while their fees are still suspended, then pay attention now! The process of fine-tuning your idea and researching and writing your business plan may take some time, but there is something that you can focus on immediately to improve your chances of getting a good rate on a loan: your credit score. Obtain your FICO score immediately. If your credit score is not as good as you would like it to be, then you need to do some work to improve it.

An excellent score is a score greater than 750. So what do you need to do to move yourself towards that number? First of all, you need to have some revolving credit lines and you need to hang on to them and manage and protect them for a long time. For credit companies, a long time means about 20 years. My oldest credit card is 14 years old and that only gets me a GOOD rating for that portion of my credit score. If you do have a few old cards that you are not using, assign a recurring purchase such as a monthly charitable deduction to those cards to keep them active. In this time of tight credit, credit companies may take away cards that are not active and that hurts your credit rating by reducing the amount of total credit that you have available.

This brings us to the second piece that you need to manage, your credit utilization rate. EXCELLENT credit scores require your credit utilization rate to be less than 20%. Less than 10% is preferrable. This means that if you have $50,000 available credit on various cards, your total amount actually charged should be less than $5000. The point to a credit card is that you make purchases and then you pay them down to $0, preferrably by the next payment due date so that you do not incur any finance charges. Credit cards are one of the most expensive ways to finance purchases with rates often between 10-33%. So if you are looking to make a purchase that you cannot afford to pay for within the next month or two, consider a different type of loan or even think of saving up ahead of time for the purchase. Stay on top of how much you have charged in a given month. If you have a credit card limit reduced or a card closed, then you will need to pay off some of the debt on your card even faster to keep your credit utilization rate in line.

The most important factor when managing your credit score is to pay on time. Mark the due dates on your calendar; check your amounts due and arrange payment on-line instead of waiting for statements to come in the mail. If paying by mail, send it 10 days ahead of the due date. Whatever your trick, just make sure that you pay on time. This is a high-impact part of your credit rating and it is the simplest thing that you can take action on.

What if you haven't been able to pay down your credit cards yet? Consider reallocating your budget, dropping or reducing one or two items and directing that money toward your credit card payment. Or consider taking on a second job until your cards are paid off and allocating all of that second income to your debt payments. If you are thinking of starting your own business, you could even hold onto that second job for a little while after your debts are paid off to build up some of the equity savings that you will need in order to obtain financing for starting your business.

Thursday, August 20, 2009

You can’t watch the news or read a paper these days without the topic of health care reform coming up. It is hard to get through the rhetoric and decide what our legislators should do. I do know this: my family has been through several serious health issues in the last 18 years and they have had an impact on our bottom line. My daughter was diagnosed with leukemia when she was seven weeks old. She went through 28 months of chemotherapy and we are blessed to say she is cured. The bill for her first month of treatment, which did include a helicopter ride to Madison, a week in the ICU, surgery, numerous blood transfusions and several doses of chemotherapy, cost $52,000. Fast forward 18 years and this year my husband developed a herniated disc in his neck. He had outpatient surgery and was in and out of the hospital in 12 hours. The bill from the facility was $56,000. Just for the facility. Something is clearly out of line. We are fortunate to have health insurance through my husband’s employer who has felt the impact of our health woes as well. The company was dropped by their carrier the year after our daughter was diagnosed and when they found a new carrier, the rates were significantly higher. This resulted in a larger portion paid by the employees which meant less take home pay for all of them. Uwe Reinhardt had a commentary on the CNN website this week that was very informative. “Milliman Inc., an employee benefits consulting firm, publishes annually its Milliman Medical Index on the total health care spending by or for a typical American family of four with private health insurance. The index totals the family's out-of-pocket spending for health care plus the contribution employers and employees make to that family's job-related health insurance coverage. The Milliman Medical Index stood at $8,414 in 2001. It had risen to $16,700 by 2009. It is likely to rise to $18,000 by next year. That is more than a doubling of costs in the span of a decade!”Uwe Reinhardt is James Madison professor of political economy at Princeton University's Woodrow Wilson School. From 1986 to 1995 he served as a commissioner on the Physician Payment Review Committee, established in 1986 by Congress to advise it on issues related to the payment of physicians.I listen to people rant and rave and fear change. They say we don’t need to reinvent the wheel. I am still not sure what the answer is but we do need change and I think we need less shouting and more listening if we are going to solve this problem. Go to CNN.com and click on commentary for the entire article. Susan

Thursday, August 6, 2009

Our local newspaper has an ongoing series in the business section about people in transition. That concept resonates with me as summer winds down and the fall begins. When Beth approached me with the proposition to combine our consulting practices, it was a perfect time to undertake such a project. My kids were both at a stable point in their lives with my daughter half-way through her senior year of high school and my son finishing up middle school. Stephanie had already been accepted into college so I could focus all my energies into starting up a new business. As a new school year approaches, I’m very glad I have work to keep me busy! My husband and I will be taking Stephanie to Madison on August 27th to begin her college years at UW-Madison. We know she will do well and have a great college experience, but we will miss her a great deal. My son will be starting high school this fall so he will also have plenty to keep him occupied so he won’t miss his sister as much. I’m not sure the dog is going to enjoy all these changes. He likes having the kids home in the summer and he definitely has not liked my working this much.

We seem to be entering a transition time in the economy as well. The S&P 500 went over a 1000 this week for the first time in nine months and the housing market is starting to stabilize in many key areas. It remains a good time for all business owners to keep reviewing their business plans, studying their financial statements and considering their options for the future so they will be ready to reap the benefits of a rebounding economy. Many people fear change, but when faced with new challenges and situations, its best to consider them an opportunity rather than am obstacle.

Saturday, August 1, 2009

Summer is a difficult time to be working out of a home office. When I first began working out of the home instead of in an office, I did it right. I set up an office area with my own computer and printer, files, resources, office phone, and, most importantly, a door. I made lists, designated office time, and worked efficiently during those hours. Eventually, as my children grew and were eventually gone to school all day, and with the purchase of my first laptop, I found myself migrating to my favorite areas in the house to work instead of staying in my office. It was sunnier in my kitchen, beautiful in my garden, comfortable in my living room, and so that is where I found myself working.

There have been a few days this summer that have forced me to retreat back to my office just to get things done. Friday was one of those days! My husband was getting ready to leave for a hiking trip with his friends and sat down next to me in the kitchen to talk just as I was reviewing a client's notes for a business plan that I am helping him write and preparing for a telephone interview which was to take place in 45 minutes. We had plenty of time to talk prior to that moment, but he was busy packing. I did take my phone call in my office, but was interrupted by my 17 year old answering the home phone and actually bringing it to me while I was talking on my business phone. Trying to restrain the sarcasm in my voice I asked her to take a message. Then I was interrupted when my daughter left for work, my husband left on his trip, my son needed me to take him to the store, and so the entire day continued. By 5:30 I didn't feel as though I had accomplished much at work, and I hadn't taken a working vacation day either (you know, the days when you decide that you are going to take a vacation day to get all of your housework and errands accomplished). It was sort of that land in between that work-at-homes experience.

As I thought about this, however, I realized that I have actually become spoiled by the focused quiet time that I get during the school year when I am working at home. I remember back to the days in my cubby in the corporate world when I was interrupted constantly by team members, colleagues, and bosses with questions, requests, demands, or just to chat. So, while I may be lax with my workspace during the school year, I need to reinstate my office rules during the summer months when everyone is home and when my husband takes much of his vacation so that I can get my work done and actually enjoy some vacation time with my family before the winter snow flies again.

Friday, July 24, 2009

As we work with small businesses and entrepreneurs we are noticing that many view the preparation of Financial Statements as being mainly for the use of their lenders and the taxing authorities. While we realize that those two groups do need accurate and timely financial statements, small businesses should be taking the lead from large corporations and using their financial statements to manage their daily business. We would encourage small business owners to focus on Financial Management as well.

What is Financial Management? It is the process of recording what money is coming in and going out of your business and using that information to generate reports which help you to make good decisions in running your business. Information from financial management is used by both internal and external decision makers.

Six Ways Financial Management Helps Your Business Succeed:1. Cash Flow: Clearly understand how much money (cash) comes into and goes out of your business and WHEN it flows into and out of your business.2. Manage Customers and Sales: Know who your customers are, what they purchase, how much they purchase, and when they pay. Use this data to compare your actual Accounts Receivable Collection timeline to the terms that you are offering your customers.3. Manage Purchases and Production: Know who your vendors are; what and how much you purchase from them and at what cost, and what your payment terms are with your vendors (when you have to pay them). If you are manufacturing a product, know how much you are producing in a given time period and what it costs to produce your product.4. Insight and Decision Making: Make informed strategic decisions regarding pricing your product for profitability, marketing, employment, growth, and financing.5. Funding: Complete and accurate financial statements are needed for finding funding through banks and outside investors.6. Compliance: Report your company’s income, expenses, and payroll accurately to the IRS and your state government.

We are developing a Webinar to teach small business owners how to use their financial statement for financial management. Stay tuned.

Friday, July 17, 2009

There is a feeling of frustration and despair for many small business owners as they are trying to hang on and keep their business afloat during this economic downturn. But all does not have to be doom and gloom. There are some concrete things that you can do now that will improve your situation and position your company to thrive when the economy turns around.

1. Improve your cash flow situation. The main things that drive cash flow are Accounts Receivable, Accounts Payable, and Inventory. First let’s look at Accounts Receivable. In theory, Receivables are created as soon as you sell your product or service. In reality, Receivables are not created until you send out an invoice. So that is the place to start. Look at how you bill your customers and make sure that you are sending out your invoices immediately! One of the main reasons that small businesses fail is that they fail to invoice their customers. This is particularly true of the creative types…you know who you are.

Secondly, reassess the terms that you are offering to your customers. To do this you will have to look at the terms that your vendors are offering to you. Matching Accounts Receivable collections to Accounts Payable timing means that if you have to pay your vendors in 30 days, then you need to be sure that you are collecting from your customers in 30 days.

The third step is to actually collect the Receivable in a timely manner. The day that a Receivable is past due, you will need to pick up the phone and call your customer to ask for the payment. When we say the day that a Receivable is past due, we do mean that day. Not next week, or pretty soon a 30 day receivable is being collected in 45 or 60 and your cash flow is now drying up. Put a procedure in place for this task. The phone will be more effective than an e-mail or a letter which is easily ignored. Often just politely reminding them that the payment is due and asking exactly when they expect to send it is all that is needed. If your customers know that you expect payment in 30 days, pretty soon they will pay you in 30 days without you needing to remind them. Remember, everyone is struggling with their cash flow, so this area is definitely the case of the squeaky wheel gets the money.

Next let’s look at what you can do with your Accounts Payable to improve your cash flow. While it is tempting for the accountant in me to say just stop spending, that is really not practical. In truth, you do have to spend some money to make money. If you shrink your spending too severely on such items as marketing, for example, you may shrink yourself right out of business. The most important technique for Accounts Payable is to not pay them early unless there is a really good discount and you have the cash flow to take advantage of it. If your bookkeeper or accountant only cuts checks once or twice a month, hold off mailing them until they are actually due. An old trick is to write the date due on the envelope where the stamp will go.

The third component to cash flow is Inventory. Now is the time to really look at what is selling and what is not. Whatever inventory system you use, print as detailed reports as you can and look at how long items are sitting around in your business. Mark down the slow moving items and get them out of there. Make sure that you are reordering only the items that are really moving well. Money tied up in slow moving inventory is money that cannot be used to purchase new items. Focus on just-in-time inventory which means that you are only ordering the minimum amount that you need to stock your business in the short-term and work with vendors to get a quick turnaround time for reorders. If you need to fill space, think out of the box and consider rearranging items for a new look, bringing in consignment items from hungry vendors, or working with other retailers to display some of their merchandise in your facility.

2. Analyze your operations for efficiency. Look at what every employee is doing and make sure that there is no duplication of effort. Review job descriptions (or write them if you do not currently have any). Make a flow chart of your process to see what tasks are being done by whom. Follow a process from beginning to end to verify that it is being completed in the simplest way by the fewest people while still having enough separation of duties to protect your business from theft or embezzlement. Streamline. Make sure that there is a reason for every task that everyone is doing and that the reason is not just that that is the way it has always been done. Try to maximize income-producing tasks. Cross-train your employees so that you can move personnel around, reduce overtime, and protect your business from employee absences. Get rid of dead weight. Nobody can afford to keep employees who are not doing their best possible work and carrying their weight, especially in a bad economy. Improving your operations when times are tough will set you up to prosper when times get better.

3. Revisit your business plan. Make sure that you understand your market in today’s economic environment. What are people buying right now? How are people spending now? Is your market growing or shrinking? Where do you fit in to your total market? What is your niche or competitive edge? Is it still a competitive edge? Who is your competition? How are they doing in today’s environment? Who are your target customers? With cash at a premium, it is vitally important that your marketing efforts reach your target customers.

4. Start using your financial information to manage your business instead of just saving the data for your tax preparer’s use at the end of the year. We call this focusing on Managerial Accounting versus Tax Accounting. The information you need to implement the steps outlined above to improve your cash flow will come from using your financial statements. Keep up with your bookkeeping daily. Understand what concrete data you need to help you make your business decisions. Get help now to set up your system to be able to pull out that information quickly and efficiently. Have solid numbers at your fingertips. If you do not know how to read and use your financial reports, hire someone to teach you. Your financial system can help you manage your business on a daily basis if you understand it and use it.

5. Look to the future. What are the trends in your industry? Read, read, read! Don’t just keep doing the same thing over and over in hopes of hanging on. Instead, plan for the future. Be a trendsetter, constantly evolving. React quickly. Be forward thinking. Life is constant motion and those who go with the flow not only survive, they thrive.